Overseas Investment Trends 2019

Investing overseas? Here’s a look at where the smart money is going globally in 2019.

By SMART Expo, May 9 2019

We know Hong Kong is on the cusp of a challenging year in property, the first such year in nearly a decade, and many of the factors pressing down on the SAR in 2019 will exert themselves on other parts of the world too. If one thing binds us, it’s political instability, quickly followed by China’s faltering economy. After a strong 2018 for global investment, “There are signs that activity is slowing as we move into 2019 and volumes are likely to moderate next year,” said JLL in its November Global Market Perspective. But the news isn’t all bad, and not surprisingly, there are several silver linings in the clouds.

The UK
The elephant in the room is the UK’s official exit from the EU on March 29 and the parliamentary vote that didn’t happen on December 11 last year. Fearing the deal as it stood would be rejected, Prime Minister Theresa May postponed voting, and (as of printing) is now dealing with Labour bucking for a snap parliamentary vote in late December, and former PM Tony Blair suggesting a new referendum. May’s government has stated a vote will be no later than January 21, but in the meantime, the sterling is in freefall.

“The London market has been operating under political uncertainty since mid-2016 when the EU Referendum took place,” notes Knight Frank’s global head of research, Liam Bailey, adding that the vote delay simply extends the period of uncertainty in the UK to the new year. And while the pound drops to a 20-month low, London’s property market continues to chug along. According to Bailey, demand is robust and sales activity is running 7% better than it was in 2017. “The window of opportunity for international buyers is reaching very compelling levels, with a discount of 30% offered for dollar-based or dollar-pegged buyers, due to market and currency movement, compared to three years ago,” says Bailey. The economy is strong, unemployment is at a record low and the UK will outperform Europe this year.

But in its annual Emerging Trends in Real Estate survey, PwC stated 70% of its European respondents believed that the UK would have a harder time attracting talent post-Brexit, regardless of the deal it strikes. “As many as three quarters of survey respondents believe that business relocations will increase to continental Europe in 2019 as a result of Brexit while similar numbers predict a decline in UK investment and values,” said PwC. Non-Europeans were less bothered, but they too expect the two economies to diverge and that ultimately, the UK would suffer.

APAC
Asia Pacific is at the end of a boom cycle, and as markets cool off, they are also facing headwinds in the form of a critical Sino-US trade war and a sputtering engine in the form of China. Quantitative easing is easing and interest rates are finally on the way up. As PwC puts it, “Across the region, upwardly spiralling prices, compressed cap rates, and ominous macro and geopolitical indicators have fund managers and asset owners wondering whether the markets have finally peaked … The same question has been nagging investors in Asia for years — but this time, alarm bells are ringing louder than ever.”

But the fundamentals in APAC have yet to truly fall off; major and record-setting institutional transactions continue, and residential demand in all markets and price bands remains unchanged. Tokyo, Auckland, Sydney, Melbourne, Hong Kong and Singapore may have peaked, but there’s plenty of opportunity as evidenced by massive inbound capital into the region; five of Knight Frank’s Prime Global Residential Index locations for 2019 are in APAC. Melbourne tops PwC’s forecast this year, for its office supply constraints and resulting strong yields and stellar immigration patterns that will buoy any downturns in the residential sector, like the one in 2018. Following Melbourne are Singapore, Sydney, Tokyo, Shanghai, Osaka, Ho Chi Minh City, Shenzhen, Seoul (despite tensions with China) and Guangzhou.

Europe
Like many places, Europe’s recent bull run is winding down. Most of Europe has recovered from 2008 and supply and demand are in good balance. Also like many places, affordable housing is an ongoing challenge, and so among the most popular assets for investors this year will be in co-living spaces, retirement housing, student housing and purpose-built rental housing.

Also, trending in 2019 is Europe’s second-tier. Leading the way is Lisbon, for its quality of living and progressive, reform-minded leadership. “Portugal’s economy is growing at a healthy clip, and its capital is now an international destination for companies, investors and tourists,” said PwC, and Lisbon is benefitting from Barcelona’s political upheaval. Rounding out the top ten for 2019 were perpetual favourites Berlin, Dublin, Madrid — which also topped Knight Frank’s Prime Global ranking — Frankfurt, Amsterdam (both assumed targets of business migration from London), Hamburg, Helsinki, Vienna and Munich. Birmingham, Manchester and Edinburgh all ranked above London in the UK for PwC this year.

North America
The United States and Canada are the places most likely to roll the dice and try something new, making the North American property market more complex than it appears on the surface. Its diverse demographics and equally diverse policy among the US, Mexico and Canada guarantee it. For that reason, PwC predicts 2019 will be a turning point. Rates are going up there too and a correction is coming to overpriced locations like Vancouver and Miami. The American star this year will be Boston, where immigration, world-renowned schools and graduate retention, redevelopment and sustainability put its property market at the forefront for investors. Likewise, gearing up for a strong year are a mix of gateways and rising second-tier cities: Dallas/Fort Worth, Denver, New York — specifically Brooklyn — Raleigh-Durham, Nashville, Austin, Charlotte, Orlando and Tampa/St Petersburg.

In Canada, Toronto is the market to watch once again, based on the fact that the city is projected to welcome over 400,000 new international residents by 2022. Federal and provincial governments have tried to cool the city’s overheated market, “But strong drivers of demand remain indisputable. The region is also feeling the effects of demographic shifts,” said PwC, noting millennials are entering the market in droves. Vancouver ranks second, and long dormant Montréal is poised to have a strong 2019 for its comparative affordability.

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